Negotiable Certificate of Deposit (NCD) Definition & Example | InvestingAnswers

Negotiable Certificate of Deposit (NCD)

Written by: 
Image
Nicole Sivens

Nicole is a personal finance educator and writer who loves all things money management.

Nicole has launched several personal finance blogs, led content strategy at a start-up, and has written for the Wirecutter, Nerdwallet, and many other nationally-recognized financial sites. Nicole's first book, "The 7-Day Financial Fix: Getting your money right one step at a time,"  was published in late 2019.

View all posts
Reviewed by: 
Image
Rachel Siegel, CFA

Rachel Siegel, CFA is one of the nation's leading experts at ensuring the accuracy of financial and economic text.

 Her prestigious background includes over 10 years of experience in creating professional financial certification exams and another 20 years of college-level teaching.  Rachel has served as Academic Director at Bloomberg, as well as Exam Development Director at the CFA Institute. She holds a BA in English and an MBA, both from Yale University.

View all posts
Updated August 28, 2020

What Is a Negotiable Certificate of Deposit?

A negotiable certificate of deposit (NCD) is a certificate of deposit that differs from a conventional CD in that its terms are negotiated with the issuer.

Another difference is that it can be sold in the secondary markets before maturity. The NCD cannot be redeemed before maturity, but the investor can sell it to realize its value. The NCD is issued and guaranteed by a bank, usually with a minimum face value of $100,000. Like other CDs, it is insured by the FDIC for up to $250,000. 

How Do NCDs Work?

Unlike regular CDs, an institution or wealthy individual will negotiate the terms of the CD with the bank.

Once agreed upon and issued, the bank will use the funds to invest or lend in order to earn a profitable net margin interest spread, and then pay the investor the agreed interest rate according to the terms of the CD.

Because of their size, NCDs are bought by institutions and high net worth individual investors to use as a cash management tool for large sums.

Maturities on NCDs can be anywhere from two weeks to one year. Interest is paid at maturity, or the NCD may be sold at a discount to face value and then the full amount paid upon maturity.

Who Insures NCDs?

NCDs are insured by the Federal Deposit Insurance Corp. (FDIC) for up to $250,000 per depositor per bank. They are insured at face value

History of the Negotiable CD

Negotiable CDs were first issued by the First National City Bank of New York in 1961. They were created as a way for banks to raise cash at a time when investors and institutions were putting their money into bonds and other short-term marketable securities, creating a shortage of deposit accounts.
 

Ask an Expert about Negotiable Certificate of Deposit (NCD)
At InvestingAnswers, all of our content is verified for accuracy by Rachel Siegel, CFA and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Negotiable Certificate of Deposit (NCD).
Be the first to ask a question

If you have a question about Negotiable Certificate of Deposit (NCD), then please ask Rachel.

Ask a question
Rachel Siegel, CFA
CFA logo

CFA Charterholder

Chartered Financial Analyst

Rachel Siegel, CFA is one of the nation's leading experts at ensuring the accuracy of financial and economic text.  Her prestigious background includes over 10 years of experience in creating professional financial certification exams and another 20 years of college-level teaching.

If you have a question about Negotiable Certificate of Deposit (NCD), then please ask Rachel.

Ask a question Read more from Rachel

Read this next

Don't Know a Financial Term?
Search our library of 4,000+ terms
Rachel Siegel, CFA - profile
Ask an Expert about Negotiable Certificate of Deposit (NCD)

By submitting this form you agree with our Privacy Policy

Share
close